It was a roller coaster for energy traders this week. Crude and refined products fell sharply following Wednesday's DOE inventories report. Then proceeded to finish the week with a strong two day rally on hopes the presumed recovery will stimulate demand.
Energy bulls are betting heavy that the low inventory numbers and lower company operating expenses are creating leverage that will catapult production higher. One problem with this theory is that most of our production has moved overseas. If demand for products does increase, our imports will need to increase, contributing to decreased GDP numbers for Q3.
The key to long term GDP growth is to increase our exports. This is unlikely to happen in the near future, but as the US$ continues to weaken, our exports will be in greater demand.
Traders will be watching this week to see if the euro can finally break through $1.43 resistance vs. the US$. A break above this figure will have crude traders gunning for $73 with gas and distillates following the least resistance path higher.
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